The Karnataka High Court has ruled that a cheque does not become invalid merely because the bank on which it was drawn subsequently merged with another bank, holding that the successor bank takes over the merged entity’s accounts, assets and liabilities.
Justice Suraj Govindaraj, in an order dated September 17, declined to quash proceedings under Section 138 of the Negotiable Instruments Act against Bhadramma over the dishonour of a cheque originally issued from an account maintained with Vijaya Bank.
The cheque had been presented by Leelavathi Venkatesh Punjali after Vijaya Bank merged with Bank of Baroda in 2019. Bank of Baroda informed her that the cheque could not be honoured because Vijaya Bank no longer existed.
Merger Does Not Extinguish Bank Account
The High Court rejected the argument that the cheque could not attract proceedings under Section 138 merely because it had been drawn on Vijaya Bank before the merger.
Justice Govindaraj observed that when one bank merges with another, the merged bank’s assets and liabilities pass to the resultant entity. The account maintained by Bhadramma with Vijaya Bank, therefore, stood transferred to Bank of Baroda.
The court said Bank of Baroda, having taken over Vijaya Bank’s accounts along with the credit balances, assets and liabilities attached to them, could not treat the account itself as having ceased to exist merely because of the merger.
It further held that Bank of Baroda was required to service the account holders of Vijaya Bank after taking over the bank.
Dispute Over Alleged Misuse Of Cheque To Be Tested At Trial
Bhadramma had also denied issuing the cheque to Leelavathi and claimed that a cheque she had misplaced had been misused.
The High Court noted, however, that there was no dispute that Bhadramma had maintained an account with Vijaya Bank and that the cheque in question related to that account.
It held that her contention regarding the alleged loss and misuse of the cheque involved a factual issue that would have to be established during trial.
Accordingly, the High Court refused to interfere with the proceedings initiated against Bhadramma under Section 138 of the Negotiable Instruments Act.
